Expecting a sustained jump in dayrates alongside rising rig counts, Raymond James analyst Andrew Bradford sees increased profitability for North American contract drillers.
“At this point, each increment in the US. rig count and each higher-spec single or double in Canada is incurring reactivation costs, which can range from 200k to 700k,” he said. “These rigs require recertification of the overhead equipment and often of the electrical components. In some cases, the producer may wish to see some minor upgrades, such as an additional pump, more moderate upgrades like specialty pipe, or even more comprehensive upgrades such as walking systems – the costs of which are variable to rig design. But whatever these costs, the drillers have been ruthlessly successful at passing them on to producers in the form of higher rates.”
“Drillers aren’t as vulnerable to cost inflation as other, more product-heavy service lines. In Canada, labour costs are passed-through per CAODC contracts and rig fuel is typically on the outside of contracts. Items where cost escalation matters are repairs & maintenance and, to a degree, U.S. wages. Consequently, we won’t be surprised if 3Q Canadian margins are around $4,000 per day higher year-over-year and up a similar increment in the US, in USD terms. We’re expecting overall EBITDA growth in the 70-per-cent to 85-per-cent range in 2022, which would be the largest percent change for Canadian drillers in at least 12 years.”
Mr. Bradford views the Street’s estimates for Canadian drillers as “too conservatively biased,” particularly from the third quarter as “contracts begin rolling into current market pricing at accelerated rates.”
In a separate note, Mr. Bradford adjusted his targets for pressure pumpers:
- STEP Energy Services Ltd. ( “outperform”) to $6 from $4.25. Average: $6.18.